Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM1.33 (Exhibit 2) for Protasco.

• Protasco's 9MFY17 came in at only 62% and 66% of our full-year forecast and the full-year consensus estimates respectively. However, we consider the results within expectations as we anticipate a stronger 4QFY17 with key construction projects (i.e. PPA1M Phase 2 and SUKE) gathering momentum, as well as better performance from its maintenance division following the recent renewal of the federal road maintenance concession.

• 9MFY17 net profit dropped by 49% YoY as key new construction jobs are still at initial stages of execution, coupled with the absence of new property launches amidst a soft property market.

• These were partially cushioned by stronger performance of its engineering services thanks to increased engineering consultancy works for highways and the transport sector and soil investigation services.

• We project Protasco's earnings to recover by 24% in FY18F underpinned by: (1) accelerated billings from key construction projects such as the PPA1M phase 2 and SUKE; (2) higher earnings from the road maintenance arm following the renewal of federal road maintenance concession under Roadcare and maiden contributions from two additional state road maintenance concessions secured last year; and (3) higher demand for its engineering consultancy works and soil investigation services.

• We continue to like Protasco for: 1) the recurring income stream from its road maintenance concessions with an outstanding value of RM4.0bil which will last until 2026 (and beyond if they are renewed); 2) its growing conventional construction business, particularly the affordable housing segment; 3) the tremendous value of its landbank in Bangi, KL; and 4) its attractive dividend yield of 5-7% per annum.

Source: AmInvest Research - 30 Nov 2017